Consider the commuting problem discussed in class. The problem involves a community of commuters who commute from a suburb to a city for work. There are two travel options. First, commuters can take the surface streets. If they do so, they always reach their offices in 40 minutes. Second, commuters can take the highway. If only one commuter takes the highway, she reaches her office in 30 minutes. Each additional commuter adds 1 second to the commute time of every other commuter on the highway (For example, if 61 commuters take the highway, they all arrive at work in 31 minutes.) In this context, the efficient outcome is the one that minimizes the total commute time of the population. a. Represent the problem in a graph. The graph should include various marginal benefit and cost curves and should identify the efficient outcome and the "market" outcome. (Using the eract numbers isn't necessary, but try to get the overall look of the graph correct.) Label the graph clearly.
b. Imagine you had to explain this problem to someone without an economics background. Explain in simple but economically rigorous language why the market and efficient outcomes are different. Use as many concepts / terms from class as possible, but define these clearly when you use them.
c. Can you think of any way to correct this market failure? Explain why your approach solves the problem.